Tech Firm's Closing Hits Aeneas Fund

After an apparent failed attempt to lobby the federal government for support, the Harvard Management Company (HMC) has written down to zero its multi-million dollar investment in a New York-based high technology firm that went out of business this week.

The demise of Hampshire Instruments Inc., which supplied equipment to semiconductor manufacturers, has prompted HMC to devalue its stake in the firm from about $5 million at the start of this fiscal year to nothing, according to several sources knowledgeable about the investment.

But Harvard's total loss from the investment over the last three years has been far greater, the sources said.

In 1991, when the management company's high-risk Aeneas portfolio suffered writedowns of more than $200 million, HMC devalued its nearly $24 million investment in Hampshire to $8 million.

A series of additional investments or loan guarantees since then might push Harvard's total loss into the $40 million range, one source said.

According to the source, the Hampshire writedown marks the largest loss sustained on any single venture capital investment in Aeneas' 18-year history.

But the $40 million estimate was disputed by Aeneas Managing Partner Scott M. Sperling yesterday.

"It was never valued at...[anything] close to that," said Sperling, who also serves as a member of Hampshire's board of directors. "It's less than one percent of assets, so it's not [a significant loss]."

Sperling would not say how much Hampshire had been valued at its peak.

He said the writedown was not important in the larger picture of Aeneas' investments and would not have much of an effect on the portfolio's performance in fiscal 1993.

"You don't like to lose at all, but the nature of the business is you will have losses," Sperling said. "It won't have a significant impact."

Gore Was Lobbled, Source Says

But one source said Sperling--who recently took time off from HMC to work for President Bill Clinton's election campaign--lobbied Vice President Al Gore '69 heavily to save Hampshire.

Sperling yesterday would not confirm any lobbying effort. "We just don't talk about those sorts of things," he said.

A spokesperson for Gore's office was unable to confirm the report last night.

The Hampshire loss comes at a tough time for HMC's private placements.

Aeneas, which comprises roughly 20 percent of Harvard's $5.4 billion endowment, includes some of HMC's most volatile investments in venture capital, real estate and energy commodities.

According to HMC's annual report, venture capital makes up the largest portion of the Aeneas portfolio, with investments totalling $887 million as of June 30, 1992.

Aeneas venture capital investments performed well in fiscal 1992, earning a respectable return of 22.6 percent and slightly exceeding HMC's internal benchmark target of 20.7 percent for the year.

But the portfolio's real estate and energy commodities investments earned negative returns over the same period.

Just last month, the U.S. Navy announced plans to vacate two HMC-owned office buildings in Virginia that it has been leasing. According to several experts, the Navy's move from the Crystal City buildings could significantly reduce the investment's estimated value of $113 million.

X-Ray Lithography Equipment

Hampshire Instruments, based in Rochester, NY and with a local office in Marlborough, was founded in 1984 as a developer and supplier of X-ray lithography equipment for the semiconductor industry.

According to a Hampshire fact sheet, the company's research was aimed at developing an "X-ray stepper," a device designed to imprint features on integrated circuits.

If successful, the X-ray system would allow for the production of denser, more precise circuits than those produced with standard optical lithography technology, which uses ultraviolet light.

But according to one industry expert, any results to Hampshire's efforts were on the very distant horizon, and would require substantial, long-term financial investments.

"[X-ray lithography] is a technology that people don't expect to be widely used until the next century," said Charles F. Boucher, a senior industry analyst with San Jose-based Dataquest Inc., an international high-technology market research firm. "So they were working on a technology that didn't have any wide near-term application."

If successful, an investment in X-ray lithography could prove profitable in the distant future, Boucher said, adding that Hampshire, as an early venture into the development of the new technology, faced some inevitable stumbling blocks.

"As one of the early companies in this field, they were the company that was going to solve all the initial problems," Boucher said. "They were at the very beginning of the learning curve."

"Most private investors don't have the patience to wait that long for a return on their investment," Boucher added.

Much of Hampshire's backing came from state and federal investors, he said.

Improvements in optical lithography since 1984 also hurt Hampshire's financial prospects by reducing the need for the new technology, Boucher said.

"A lot of advances were made since then in ultraviolet lithography and those were not foreseen," Boucher said.

Since the company's inception, investors sank between $100 million and $130 million into Hampshire, according to a recent report on the firm prepared by Dataquest.

In that time, the report said, Hampshire entered into only two agreements--with a total value of less than $10 million--to sell its stepper technology.

"It was a high risk venture, no doubt about it...It was a pretty gutsy operation," Boucher said. "Their work is definitely going to be useful to others in the future."

Neither Hampshire President Moshe J. Lubin nor HMC President Jack R. Meyer returned a phone call last night

But the $40 million estimate was disputed by Aeneas Managing Partner Scott M. Sperling yesterday.

"It was never valued at...[anything] close to that," said Sperling, who also serves as a member of Hampshire's board of directors. "It's less than one percent of assets, so it's not [a significant loss]."

Sperling would not say how much Hampshire had been valued at its peak.

He said the writedown was not important in the larger picture of Aeneas' investments and would not have much of an effect on the portfolio's performance in fiscal 1993.

"You don't like to lose at all, but the nature of the business is you will have losses," Sperling said. "It won't have a significant impact."

Gore Was Lobbled, Source Says

But one source said Sperling--who recently took time off from HMC to work for President Bill Clinton's election campaign--lobbied Vice President Al Gore '69 heavily to save Hampshire.

Sperling yesterday would not confirm any lobbying effort. "We just don't talk about those sorts of things," he said.

A spokesperson for Gore's office was unable to confirm the report last night.

The Hampshire loss comes at a tough time for HMC's private placements.

Aeneas, which comprises roughly 20 percent of Harvard's $5.4 billion endowment, includes some of HMC's most volatile investments in venture capital, real estate and energy commodities.

According to HMC's annual report, venture capital makes up the largest portion of the Aeneas portfolio, with investments totalling $887 million as of June 30, 1992.

Aeneas venture capital investments performed well in fiscal 1992, earning a respectable return of 22.6 percent and slightly exceeding HMC's internal benchmark target of 20.7 percent for the year.

But the portfolio's real estate and energy commodities investments earned negative returns over the same period.

Just last month, the U.S. Navy announced plans to vacate two HMC-owned office buildings in Virginia that it has been leasing. According to several experts, the Navy's move from the Crystal City buildings could significantly reduce the investment's estimated value of $113 million.

X-Ray Lithography Equipment

Hampshire Instruments, based in Rochester, NY and with a local office in Marlborough, was founded in 1984 as a developer and supplier of X-ray lithography equipment for the semiconductor industry.

According to a Hampshire fact sheet, the company's research was aimed at developing an "X-ray stepper," a device designed to imprint features on integrated circuits.

If successful, the X-ray system would allow for the production of denser, more precise circuits than those produced with standard optical lithography technology, which uses ultraviolet light.

But according to one industry expert, any results to Hampshire's efforts were on the very distant horizon, and would require substantial, long-term financial investments.

"[X-ray lithography] is a technology that people don't expect to be widely used until the next century," said Charles F. Boucher, a senior industry analyst with San Jose-based Dataquest Inc., an international high-technology market research firm. "So they were working on a technology that didn't have any wide near-term application."

If successful, an investment in X-ray lithography could prove profitable in the distant future, Boucher said, adding that Hampshire, as an early venture into the development of the new technology, faced some inevitable stumbling blocks.

"As one of the early companies in this field, they were the company that was going to solve all the initial problems," Boucher said. "They were at the very beginning of the learning curve."

"Most private investors don't have the patience to wait that long for a return on their investment," Boucher added.

Much of Hampshire's backing came from state and federal investors, he said.

Improvements in optical lithography since 1984 also hurt Hampshire's financial prospects by reducing the need for the new technology, Boucher said.

"A lot of advances were made since then in ultraviolet lithography and those were not foreseen," Boucher said.

Since the company's inception, investors sank between $100 million and $130 million into Hampshire, according to a recent report on the firm prepared by Dataquest.

In that time, the report said, Hampshire entered into only two agreements--with a total value of less than $10 million--to sell its stepper technology.

"It was a high risk venture, no doubt about it...It was a pretty gutsy operation," Boucher said. "Their work is definitely going to be useful to others in the future."

Neither Hampshire President Moshe J. Lubin nor HMC President Jack R. Meyer returned a phone call last night